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Patrick J. O'Keefe Discusses January 2016 Jobs Report


2/2/16

On Friday, February 5, the Bureau of Labor Statistics (BLS) reported that the U.S. economy added 151,000 jobs in January, while the unemployment rate landed at 4.8%, the lowest it's been since 2008.

Patrick J. O'Keefe, CohnReznick's Director of Economic Research, spoke with the media on January's numbers, and prior to the release, shared his expectations.

We expect the BLS to report that:

  • Employment increased by 180,000 jobs;
  • Employment rate is highest since mid-2009;
  • Unemployment fell to the lowest level since early 2008; and,
  • Hourly earnings rose modestly.
     

The accompanying chartbook displays the most recent labor market indicators.

Background - Employment [Charts 1 - 29]

At the end of 2015, the United States had a record 143.2 million jobs, some five million more than prior to the recession.

From its peak at the start of 2008, the economy lost 8.7 million jobs during the recession. Since employment bottomed in February 2010, the economy has added 13.6 million payroll positions -- all in the private sector.

Last year's (2015's) employment gain (2.7 million jobs) was the second largest since 1999. But it was considerably smaller than the 3.1 million jobs added in 2014.

The BLS is expected to report that employment rose by 180,000 jobs -- the fewest since September -- with all but 10,000 in the private sector.

Friday's data should mark the 64th consecutive monthly increase in total employment -- and the 71st monthly expansion of private payrolls -- extending the longest uninterrupted strings of jobs growth on records from 1939.

While employers reduced their hiring in 2015, they were reluctant to sever employees. Applications for unemployment benefits, a proxy for layoffs, have been below 300,000 for 47 consecutive weeks, the longest span since 1973 (when covered employment was less than one-half the current count.)

Since it began in March 2010, the jobs recovery has proceeded unevenly. Private service providers have driven the jobs recovery, while goods producers and public agencies have been a drag on it.

December's jobs count exceeded the pre-recession peak by 3.5%. That reflected employment gains among private service providers of 8.0%, while goods producers' and public agencies' payrolls remained, respectively, 10.5% and 1.7% below January 2008 levels.

We expect the pattern to continue when BLS reports on Friday, with healthcare, leisure/hospitality, and professional/technical services notching solid gains; goods producers (manufacturing, construction and extraction) little changed; and government jobs up modestly.

Average hourly earnings are estimated to have increased 5 cents (0.2%) in January, more than fully reversing December's 1 cent decline.

Background - Labor Force [Charts 30 - 41]

The employment data discussed above are based on a survey of employers. The data discussed below focus on the labor market status of residents and are derived from a survey of households.

The labor force is comprised of all non-institutionalized civilians, 16 years or older, who are either jobholders or jobseekers (i.e., actively sought work in the prior four weeks).

The labor force participation rate (LFPR), the share of the work-age population that has or is seeking paid employment, peaked at 67.3% in early 2000 and subsequently drifted downward on shifting demographic trends to reach 66.0% in mid-2007.

The participation decline persisted through and beyond the recession (for economic and demographic reasons) and, toward the end of 2013, reached a 36-year low (62.8%).

It then fluctuated around 62.8% through May of 2015 and has since drifted further downward.

Increasing retirement by Boomers (those born between 1946 and 1964) -- although at a slower rate than anticipated -- partially explains the LFPR’s decline. 

But the diminished participation of prime work-age adults (those between 25 and 54) accounts for much of the decline and that has significant implications for economic growth, as well as fiscal and monetary policies.

In December, the LFPR continued to inch up from September's decades-low (i.e., lowest since October 1977), and returned to June's 62.6%.

The unemployment rate (UR) was 5.0% in December, one-half the recessionary peak (October 2009). Friday's report should show that the UR remained at 5.0%, in close proximity to the Federal Reserve's policy target.

But the UR's decline overstates the recovery as much of it is due to jobseekers abandoning their search in frustration rather having fulfilled it with a job.

From the start of the recession, the work-age population has increased by 8.3%. The labor force rose 2.4% over the same period.

Were labor force participation equivalent to its pre-recession average (e.g., 66.1% between 2003-2007), the unemployment rate would be 10.0%.

The employment rate (i.e., jobholders as a proportion of the work-age population) rose to 59.5%, which exceeds the recession's nadir (58.2%) but falls short of the pre-recession average (e.g., 63.0% in 2007).

We look for BLS to report that the employment rate rose to 59.6% in January, which would be the highest since May 2009.

The number of jobholders (i.e., employed individuals) reached a record 149.9 million in December. Had the employment rate been equivalent to the pre-recession average, however, there would have been 9.2 million more jobholders in December.

Underemployment (i.e. involuntary part-time workers) fell gradually through much of the recovery. Since March, however, the decline has gained momentum and reduced underemployment by more than one-half million. December's count was one-third (35.2%) less than the early-2010 recessionary peak.

The most recent data indicate that long-term unemployment (spells exceeding 26 weeks) declined modestly (-1.5%) in December. Although monthly gyrations are common, the trend has been persistently downward. Since peaking in April 2010, long-term unemployment has fallen by more than two-thirds (69.3%).

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